Standing Committee A

[Mr. George Stevenson in the Chair]

Pension Annuities (Amendment) Bill

David Curry: I beg to move,
 That, during proceedings on the Pension Annuities (Amendment) Bill, the Committee do meet on Thursdays when the House is sitting at five minutes to Nine o'clock and half-past Two o'clock.
 It is traditional that you allow some latitude at this stage in our proceedings, Mr. Stevenson, so may I first note that today is St. Valentine's day and that private Member's Bills are a chore over and above the usual duties of Ministers? The Bill is the second private Member's Bill with which the Economic Secretary has had to deal in two days. I do not wish that to be overlooked. Perhaps the hon. Lady has been earmarked for a task that she would prefer not to do. So, from a Yorkshire Member of Parliament to a Lancashire Member of Parliament, my finest attempt at gallantry would be to offer her a red rose.

George Stevenson: Order. All contributions in Committee must come through the Chair.

David Curry: Indeed, Mr. Stevenson. I am looking forward to discussing the Bill with the Minister. Given the number of amendments that have been tabled by the Government, her purpose in Committee may be to disembowel rather than to clarify, but all of us know the name of the game. I shall take her indignant repudiation of such an outrageous suggestion at the value that comes with my long experience of having been a Minister and having been occasionally in the same situation.

Ruth Kelly: I welcome you to the Chair, Mr. Stevenson. I think that this is the first time that I have debated a Bill under your chairmanship and I look forward to receiving the benefit of your wisdom and experience. I also thank—through the Chair, of course—the right hon. Member for Skipton and Ripon (Mr. Curry) for the rose. It is the third that I have received today—the other two were from my children.
 If our debates are not concluded today, I look forward to further sittings. I tried extremely hard to explain all my arguments against the Bill on Second Reading, but was rudely interrupted in mid flow. I was about to refer to its financial implications when, unfortunately, we were faced with the closure motion and the House did not have the chance thoroughly to debate such matters. 
 Question put and agreed to.

Clause 1 - Amendment of the Income and Corporation Taxes Act 1988

Ruth Kelly: I beg to move amendment No. 6, in page 1, line 5, leave out 'sums for investment in' and insert 'withdrawals from'.

George Stevenson: With this it will be convenient to take the following amendments: No. 15, in page 2, line 23, at end insert—
 '( ) Where a member elects to defer the purchase of an annuity such as is mentioned in section 634 he may, for such period as defers the purchase, designate part of the personal pension fund as a Retirement Income Fund under this section.'.
 No. 16, in page 2, leave out lines 26 and 27.

Ruth Kelly: As I was saying, we had the opportunity to debate some of the issues at length on Second Reading. However, we did not manage to finish considering the principle, never mind the details, of the Bill. The amendments are highly technical. They refer to the clause and deal with the definition and treatment of the retirement income fund, which the right hon. Member for Skipton and Ripon proposed.
 The Bill would ensure that pension scheme members used pension scheme funds for annuity purchase only to the extent necessary to secure a minimum retirement income. The annuity must be index linked and, apart from transitional measures for those in draw-down, must be bought by age 55. The Bill would allow people to withdraw residual funds from a personal pension scheme and the retirement income fund as and when they like, so long as the minimum retirement income is purchased. The amendments will ensure that the retirement income fund is a designated part of the personal pension scheme. 
 On amendment No. 6, clause 1(2)(a) is technically incorrect, as it treats income invested in a retirement income fund as a benefit to be paid out from the pension scheme. However, the Bill contains no proposal to amend section 633 of the Income and Corporation Taxes Act 1988, which defines the scope of benefits that a personal pension scheme can provide, to include payments into the fund. Even if it did, the provision would not make sense. The only way that it can work is if the benefit that the scheme can provide is amended to include withdrawals from the retirement income fund. The amendment would achieve the results intended by the Bill. 
 Amendments Nos. 15 and 16 are designed to make the provisions of the Bill workable. As it stands, the retirement income fund appears to stand apart from the personal pension fund, but there is no mechanism that would enable it to do so. The amendments make it clear that any part of the fund that is not used for annuity purchase may be designated a retirement income fund. They also make it clear that the retirement income fund will last only as long as the period permitted by the income withdrawal rule, that is, until age 75. That period would be reinstated by amendment No. 14, which we shall discuss in due course.
 It is important that the amendments are accepted to make the Bill workable. We will later discuss whether the retirement income fund is a good idea, whether it is workable, and what effect it will have on most people who draw a pension in their retirement.

David Curry: The Minister referred to Second Reading. We should ensure that we do not re-write history. The Minister chose to stand up at 1.45 pm on Second Reading, having been present since 9.30 am. For a long time prior to that, no Labour Member had spoken, but two then spoke for more than an hour and a half. I am sure that their speeches were solid, substantial and interesting, but they were also extremely long. At 2.10 pm there was a danger that we might have an ''I spy Strangers'' motion, which would have closed down the debate. I had no assurances that that would not happen. Therefore, my only option to ensure that the Bill received a Second Reading was to rule for closure.
 I had told the Minister on several previous occasions that we had hoped to move the closure motion slightly earlier because there was subsequent business that we regarded as important; it was not that I did not find her intervention fascinating. I put that on the record. 
 The Minister said that she regards the amendments as purely technical to make my Bill work in the way in which I want it to work. Having read them, I cannot say that I have reached the same conclusion. The Minister knows more about such matters than I do, as that is her job, and it is not mine. I make no pretence about the effort involved in coming to terms with complicated matters such as section 630 of the Income and Corporation Taxes Act 1988. However, I want to be clear that that is the purpose of the amendments, because the way in which I understand them is as follows. 
 Amendment No. 6 relates to section 630 of the Act, which defines all its terms. My Bill defines a personal pension fund. I understand that the amendment would remove the concept of a retirement investment fund from the definitions. I am worried that that is the first pecking away at the legislation, prior to its subsequent disembowelling. The amendment would remove from the standard definition in ICTA the notion of a retirement income fund as a new instrument. It therefore brings the definition into line with the subsequent amendments, which would destroy the concept. 
 I have enormous problems working out where amendment No. 15 would go. It refers to the end of line 23, but line 23 is a title. I am therefore not sure how it fits into the text and whether it is supposed to go at the end of a previous bit or is a new section after the title. It is not clear. The amendment seems to allow the part of the fund that has been drawn down to be called a retirement income fund. It therefore removes my definition of a retirement income fund and substitutes that title for the draw-down funds that may exist under the present mechanism. That is my understanding. Until now, I seem to be winning the title and losing the substance, and left with a fancy name for a shell.
 The purpose of my proposed new paragraph (a) is to ensure that only approved institutions can manage a retirement income fund, as specified in the Act. The Government seem to want to remove that protection for investors. If the amendment were accepted, a retirement income fund would have no supervision and could place its funds in the hands of bodies that are outside the remit of the Financial Services Authority. It could even entrust them to me to manage, which would be a serious error. I realise that later Government amendments seem to define regulatory authorities, but at the moment that is how I interpret the amendments. 
 If the Minister says clearly what I understood to be the case—that the purpose of the amendments is not as I describe but merely to put my text into the correct legal form—and confirms that it is not the beginning of the removal of the substance of my Bill but merely a re-writing in correct legal terms, I shall trust her. However, she grins to such an extent that I am not sure where I stand. Will she make that clear?

Lawrie Quinn: Like the right hon. Gentleman, I am a relative novice in relation to such legislation. He has clearly stated what is wrong with the Government's amendments, but surely as the promoter of the Bill it is beholden on him to explain to the Committee the key purpose of the existing words. Perhaps he will do so later, but in determining the merits of the amendment it would be useful to understand his original purpose.

David Curry: I fear that if I were to enter into too great a discursive debate on the Bill, you would call me to order, Mr. Stevenson, as that was the purpose of Second Reading. As I understand it, the Committee stage is focused on amendments tabled.
 We are discussing definitions. As I said, the Government's amendments would destroy the Bill. There is no point pretending otherwise. This is the definitional phase. I merely want to know whether this is the hors d'oeuvres to the feast that the Minister will have later or, as she said, an exclusively technical amendment to enable my Bill—whether she likes it or later destroys it—to work more effectively. If that is the case, I will take her word for it because I believe that that is the correct way to behave in Committee. If it is not, I depend on her to tell me if my interpretation is right. I should like her reassurance that amendment No. 16 would not remove the supervisory framework from the Bill, as my colleagues and I believe would happen. 
 I need clarification of where amendment No. 15 applies because I have not yet managed to clag it into the Bill—to use an expression that you might understand, Mr. Stevenson. Amendment No. 16 would remove the concept of retirement income fund and simply transfer that appellation to an existing mechanism. Those are my concerns.

Ruth Kelly: I appreciate the spirit in which the right hon. Gentleman asked his questions about the technical nature of the amendments. I understand that they are technical and that their purpose is not to undermine the Bill in any way. It is worthwhile to take
 the right hon. Gentleman through some of the detail of the amendments so that he knows exactly their intentions and how they apply.
 Clause 1(2)(a) as drafted suggests that the pension scheme will make provision for sums to be invested in the retirement income fund in the same way as for lump sums and annuities. Amendment No. 6 makes it clear that the retirement income fund is a designated part of the pension scheme and that the benefits will include withdrawals from that fund. In that sense, therefore, the amendment is purely technical and clears up a drafting error. 
 The right hon. Gentleman seems more concerned with amendments Nos. 15 and 16. Amendment No. 15 inserts the words 
 ''Where a member elects to defer the purchase of an annuity such as is mentioned in section 634 he may, for such period as defers the purchase, designate part of the personal pension fund as a Retirement Income Fund under this section.'' 
I realise that this is getting very technical, but clearly, this is the right hon. Gentleman's Bill and he is interested in the amendments. The purpose of the amendment is to make it clear that the retirement income fund is part of the personal pension fund and that that fund will last only for the period permitted by the income withdrawal rule. The obvious consideration is whether we should have that rule under the Bill. Later on, I shall argue that it should still apply. I imagine that we will differ on the question of its re-insertion when we debate that part of the Bill. 
 Clause 1(7) inserts a new provision, section 637B, into the Income and Corporation Taxes Act 1988. The definition of the retirement income fund is inadequate as drafted because it implies that the fund is somehow separate from the personal pension fund. However, there is no proposal to amend section 633, which concerns the scope of benefits for a personal pension scheme, to include payments into a retirement income fund and amendment No. 15 removes any ambiguity by making it clear that the retirement income fund remains a designated part of the pension fund. 
 That leads on to amendment No. 16 and the right hon. Gentleman's concerns about the framework for protection of his proposed retirement income fund. Amendment No. 16 is consequential on amendment No. 15, which inserts a new provision into section 637B of the 1998 Act. Amendment No. 15 defines the retirement income fund and specifies that it must be established by a person designated under section 632(1) of the Act. With regard to a designated person, because the retirement income fund is now considered to be a designated part of the personal pension fund, it must be established in accordance with the general framework of the personal pension fund. Therefore, the amendment would not have an effect on investor protection.

Frank Field: I advise my right hon. Friend—for today's purposes, I shall refer to him as such—the Member for Skipton and Ripon to accept the amendment and the compliment that the Minister is paying him. It is generally agreed that she is the
 cleverest Treasury Minister. He assumes that almost all of the Government amendments are wrecking amendments. If that is the case, the Minister's comments offer hope, because she is trying to back both horses: for fear that the Bill will be enacted, she wants to make it more workable.
 Given the spirit in which the Minister has proposed the amendment, we should accept it. However, we must be aware that she has other designs on the Bill, and those might be resisted.

David Curry: I am sure that the right hon. Gentleman meant to say that the Minister was the cleverest person in the Treasury team, other than the Chancellor.

Frank Field: With regard to my statement, the full stop can rest where I put it—[Interruption.]

David Curry: It would not be appropriate for me to intervene in this debate about the intelligence of Treasury Ministers. All hon. Members who serve in other Government Departments hold clear views about Treasury Ministers.
 I asked the Minister if her purpose with regard to this group of amendments was to clarify matters so that the legislation would be more workable—although what might happen to it later is a different matter. She told me that that was her purpose and she assured me that I should not harbour suspicions that her amendments might be the aperitif before the feast. Therefore, I am willing to commend them. 
 Amendment agreed to.

Angela Browning: I beg to move amendment No. 1, in page 1, line 6, after 'Fund', insert
'or sums for investment in a Retirement Failsafe Fund.'.

George Stevenson: With this it will be convenient to consider the following amendments: No. 2, in page 1, line 9, after 'Fund', insert
'or withdrawal of funds from a Retirement Failsafe Fund'.
 No. 3 , in page 1, line 17, at end insert— 
'(g) the payment to a member of income from a Retirement Failsafe Fund satisfying the conditions of section 637C.'.
 No. 4, in page 2, line 22, leave out 'section is' and insert 'sections are'. 
 No. 5, in page 2, line 41, at end insert— 
 '637 Retirement Failsafe Fund 
 (1) Where a member elects not to purchase an annuity he may transfer funds into a Retirement Failsafe Fund as follows— 
 (2) The sum to be placed into the Retirement Failsafe Fund shall be the lesser of 
 (a) 150 per cent. of the fund size needed to ensure the member has an income the equivalent of the Minimum Retirement Income, or 
 (b) the whole person pension scheme fund 
 (3) Withdrawals from the Retirement Failsafe Fund must be taken such as will ensure the member has an annual income equal to the Minimum Retirement Income set under section 2 of the Pensions Annuities (Amendment) 2002. 
 (4) Any balance remaining in the personal pension scheme after the Retirement Failsafe Fund is established may be withdrawn as income as and when the member elects until he attains the age of 80.
 (5) At the age of 80 the balance in the Retirement Failsafe Fund shall be transferred back into the personal pension scheme and withdrawals made from the whole scheme as follows— 
 In each successive year starting at the age of 80 a sum shall be withdrawn equal to the balance of the fund at the commencement of that respective year divided by the number of years then remaining to the age of 100. 
 (6) All withdrawals under subsections (3), (4) and (5) shall be regarded as ''income'' within section 1 of this Act. 
 (7) The right to all withdrawals under subsections (3), (4) and (5) must not be capable of assignment or surrender.'.

Angela Browning: First, I wish to mention that I have not received any red roses or cards this morning and that is sad on St. Valentine's day.
 These amendments have cross-party support. They have been tabled as a result of representations that many hon. Members have received from members of the Christian Brethren. They have felt for a long while that the existing pension annuity arrangements exclude them from making adequate provision for their and their employees' retirement. Therefore, the amendments are intended to add to the Bill, rather than detract from it. 
 It might be helpful if I explain the background to the amendments. Christians known as Brethren want equitable pension provision that meets their consciences. As the Minister knows, they have been working constructively for several years with the Treasury and the Inland Revenue to overcome that problem. It is clear that they are at a disadvantage and the amendments would rectify that. 
 I draw the attention of the Committee to amendment No. 5, which would insert a provision in the Bill for a retirement failsafe fund. Hon. Members will note that the amendment provides that 
 ''In each successive year starting at the age of 80 a sum shall be withdrawn equal to the balance of the fund at the commencement of that respective year divided by the number of years then remaining to the age of 100.'' 
We are all aware—not least because of our attention to the Queen Mother—that people commonly live beyond the age of 100. However, that is a realistic age to use. 
 Members of the Christian Brethren have held discussions with many hon. Members and have told the Treasury that cash individual savings accounts should be recognised as an official pension route. They do not think that existing funds are acceptable because they regard any form of life annuity as a life insurance policy that must be refused on the grounds of a strongly held conscience. We must respect that belief and try to find an alternative route because the Christian Brethren's members, as individuals and employers, have a sense of responsibility. I read the White Paper that the Minister produced and I know that she wants equity and to encourage people to make provision for their retirement. Sadly, the current arrangements disadvantage that group of people. 
 Good examples of practice that have overcome the problem can be seen in other countries, such as the United States and Australia. I hope that the Minister will consider the amendments carefully. They would 
 not only improve the Bill, but fill a gap in current pension legislation that disadvantages this group of people. We need urgently to deal with the issue.

Lawrie Quinn: If the amendments were accepted and the Bill enacted, any member of our society could, presumably, elect to go for a retirement failsafe fund. The provision would not be restricted to people who had a specific moral analysis, although I am sympathetic to that position.

Angela Browning: I would not oppose that position, but there would have to be caveats. For example, if the Minister accepted that a cash ISA was a suitable vehicle for that purpose, it would need to be a long-term, lock-in ISA. I am not suggesting that the existing vehicle should be accepted because, clearly, the purpose of ISAs is long-term financial security; it is not specifically pension related.
 We want more flexibility and encouraging people to put money aside for their retirement is at the heart of pension savings. People must realise that it is worth while doing that, otherwise, they will spend their disposable income on other things. The Minister may accept that a vehicle such as a cash ISA could be an approved pension mechanism. It may be available to others, but it will be locked in and certain caveats will be attached to it.

Lawrie Quinn: I fully understand that, but the hon. Lady is saying that consequential work would be necessary to bring about that modification.

Angela Browning: Yes, indeed. The proposal is the result of four years of careful deliberations between the Brethren, the Treasury and the Inland Revenue. As I know from my discussions, notwithstanding the Bill, the Brethren hope that they are close to achieving a solution. The proposal has not been plucked out of the air; it is the achievement of four years' work.

Lawrie Quinn: If the amendments were accepted, there would be a risk of the proposal going through half baked. The members of the Brethren to whom I have spoken in the past few days are principally biscuit manufacturers from Hull and the possibility of a half-baked modification might not be what the hon. Lady wants.

Angela Browning: I understand the association. Lateral thinking may have persuaded the hon. Gentleman to use the expression ''half-baked'', but if the provision is baked, it is almost ready to come out of the oven. It seems appropriate to table amendments. Even if we were not discussing the Bill, painstaking work has already been put into such a proposal. The Revenue is anxious to find a solution to the problem as I believe in good faith is the Treasury. The Minister is nodding. Notwithstanding the Bill, it would be helpful if the hon. Lady could explain how near the proposal is to coming out of the oven.

Howard Flight: First, may I apologise to you and the Committee, Mr. Stevenson. I could not gain access to the House at 8.45 this morning for reasons that everyone will
 understand. I thank my hon. Friend the Member for Tiverton and Honiton (Mrs. Browning) greatly for introducing the amendments. She has made most of the main points, but I want to stress that the arrangements for the failsafe fund start off in essence with 150 per cent. of what would otherwise be required for the minimum retirement income annuity. The underlying concept is that it would be invested in cash and would deliver as great a surety of income in retirement as the minimum retirement income annuity itself. The fund has been structured to meet that target.
 I have written to the Minister on behalf of the Plymouth Brethren. It strikes me forcibly that, even though they may be a small group of people, their religious conscience is such that it is time that the matter was addressed. It is a separate issue from the concept of a pension ISA for the Brethren. The amendment to the Bill is for the Brethren although I accept that, as it stands, it would apply to others. As a civilised society, it is time that we accepted the crafting of something to meet the needs of a religious minority.

David Burnside: I am no expert on the technicalities of the Bill. I come from a part of the United Kingdom that is particularly interested in the protection of religious minorities and, when canvassing in my constituency, I am privileged to have conversations with the Brethren. After winning or losing the argument, I am often informed, ''I don't vote, but thank you for putting forward your point of view.'' It is a privilege to represent an interest that cannot return electoral support to me.
 The technicalities have been explained well and the Treasury and the Revenue have tried to accommodate themselves. I hope that the Minister can accept amendments Nos. 1 to 5, as they deal with an important matter of personal conscience.

Frank Field: There are people here today who are the most assiduous attendees at my surgery and who also politely tell me that they have no intention of ever voting for me or anyone else. As they leave the surgery, I quietly thank God that those constituents who do vote for me do not turn up in such numbers and pursue me with such complicated problems.
 As has been said, the amendments offer the Government two models by which we can get out of the annuities trap. Although one of them is less favourable financially, some may wish to follow it as a matter of conscience. The main argument is in the clauses of the Bill. There has been detailed discussion with Treasury Ministers and officials for many years and the Government have encouraged examination of the issue for several years. I look forward with great interest to the Minister's response and wonder whether, even if she felt the need to wreck the rest of the Bill, she would save these amendments.

Ruth Kelly: I am sorry if I shall have to disappoint people, but I absolutely recognise the case made and congratulate the hon. Members who tabled the
 amendments. Real issues are involved, including one of conscience, which are recognised inside the Treasury and the Inland Revenue—ones on which we have been lobbied for some time. I have received several representations from hon. Members who put the Brethren's case most forcefully on their behalf. Through our consultation process, we hope to explore ways round some of the difficulties that the Brethren have with buying traditional annuity products on the grounds of conscience.
 Although we hope to respect particular religious beliefs and minority interests as best we can, we cannot redesign the entire pension scheme for one group of people in a way that would disadvantage the rest.

Frank Field: If the pension scheme were designed in the way that we have discussed, perhaps most other people would want to go down that route and would therefore not feel disadvantaged.

Ruth Kelly: As my right hon. Friend said earlier, there are clearly Exchequer consequences for some of the actions that we have discussed—they are not neutral. We must examine the pension scheme as a whole. I cannot promise changes that would have implications for the Exchequer. I am, however, committed to explore the issues through the consultation process. I will examine the amendments and explain why they are unworkable and what their implications might be.
 The amendments are technically flawed. They would have unacceptable effects that might not have been anticipated when they were tabled. The first amendment treats income invested in a retirement failsafe fund, as we discussed earlier in relation to the retirement income fund, as a benefit to be paid out of the personal pensions scheme, repeating some technical mistakes . There is no proposal to amend section 333 of the 1988 Taxes Act, which defines the scope of benefits that a personal pension scheme can provide, and to include payments into the fund. The status of the retirement failsafe fund is left unclear. 
 There is also an unresolved conflict with the other clauses. For example, the Bill makes minimum retirement income annuity compulsory at 65. There is no provision to disapply that mandatory requirement where a member elects not to purchase an annuity. A lot more work on the technical drafting would need to be undertaken before we could even consider the amendments. 
 Then we have the rule that sets the size of the retirement failsafe fund, which has to be 150 per cent. of the fund size needed to generate an annual minimum retirement income. That amount would be whatever is set by the Chancellor for the year in question. It would have to increase each year by reference to increases in the retail price index, capped at 5 per cent. How much of the fund would be necessary to achieve that were an annuity to be purchased on day 1, would depend on the age of the scheme member at that time. For a 65-year-old male needing to secure an index-linked minimum retirement 
 income of £70, a fund of some £55,000 would be necessary. That is the figure that the right hon. Member for Skipton and Ripon put forward. 
 I am sure that most people would elect to take their maximum tax-free lump sums. Realistically, the fund needed would be about £73,000. The amendment requires 150 per cent. of that amount to be put in a retirement failsafe fund. That is way above the size of most people's personal pension funds, the average amount being about £30,000.

Frank Field: Why is that relevant? We have rules to prevent people doing things or to allow them to do things. The whole argument about getting away from annuities is that people would have to have a sufficient capital sum never to fall back on welfare, which means that those who did not have sufficient capital sums would not be able to operate the scheme. Those who were above it could operate it if they so wished.

Ruth Kelly: As my right hon. Friend will know, we try to design the rules in a way that will benefit the maximum number of people and disadvantage the fewest and, preferably, nobody at all. By giving extra flexibility to those with large funds we would need to lower annuity rates for the majority of people, who would be forced under the Bill to buy an index-linked annuity at the age of 65. The result would be that annuity rates would deteriorate for the majority of people. We have to look at those issues in the round to see whether we can help everyone and not a small minority at the expense of the majority.

Angela Browning: In other countries they have found a solution. If the will is there to find a solution, one can usually do so. I hear what the Minister says about dealing with the majority of people, but the whole point about minorities is that one must first have the will to resolve the problem. Clearly, other countries with comparable economies such as Australia and the United States have done so. I urge her to consider carefully the fact that other countries have had the will to resolve this problem. Despite any technicalities on the face of the Bill, if the will is there and others have done it, there is no reason why we cannot do it too.

Ruth Kelly: It is important to explore in detail some of the flaws in the amendments to show why the Government cannot support them. That is not to say that we do not have the will to explore issues in relation to the Brethren. I shall come to some of the methods that they may use to save for their retirement.
 To return to the size of the fund, even if there were enough money in the pension scheme, there would be no guarantee that the failsafe fund would be able to generate the minimum retirement income year after year. Although some of these issues apply to the suggested failsafe fund, they apply equally to the principles behind the Bill and this is a useful opportunity to explore them. The Government's objections on that score also apply to other provisions.

Howard Flight: On that point, the risks would be even greater if people bought standard annuities and we had a period of rapid inflation that devalued them to
 very little. The risk of people having to depend on the state is, in absolute terms, just as great as the risk of 150 per cent. not providing something that was parallel to or greater than what the required annuity would provide. There are unlikely risks both ways, but it is not right to cast one and not the other.

Ruth Kelly: I find the hon. Gentleman's point a little difficult to interpret, as the Bill deals with the requirement to buy an index-linked annuity. I think that he is referring to people who take out a flat-rate annuity and who might fall back on the state when inflation rises.

Howard Flight: I thank the Minister for her comments; she is right. I was pointing out that, under the regime that the Government accept at present, they must realise that there is a massive risk to the state because an overwhelming number of people buy flat-rate annuities. Whether the income from them will be sufficient to keep people depends entirely on whether inflation remains low. I was not contrasting the failsafe fund with what is in the Bill; I was saying that the risk to which the Minister refers is smaller than the risk that she is already running.

Ruth Kelly: I thank the hon. Gentleman for those comments. It is important to draw out these points. About 80 per cent. of people who buy annuities buy flat-rate annuities, which are not index linked and are therefore vulnerable to the problems that he described, such as inflation eroding their value in retirement. That is why we are asking why people take out flat-rate annuities. What is their driving force? Is it that they are ill informed and do not have proper choices? Does the advice market work properly? Do we have appropriate facilities to enable people to shop around and take advantage of competitive rates?
 I understand, for instance, that there is a gap of some 30 per cent. in income flow between the best and worst annuity providers. The inertia in the system is so great that people tend to take the annuity directly from their pension fund manager without even asking themselves which sort would suit them best. I fully accept that, because of the way in which the current system works, it is vulnerable to those effects. 
 The Government are committed to understanding the reasons for that inertia and to correcting it by making the advice market work better. Under the auspices of the Financial Services Authority, there are already initiatives to encourage people in the annuity market to shop around and take advantage of the best deals. That is a slow process, but I hope that it will have an effect in the long term. 
 One of the main aims underlying the consultation document that we recently issued was to find out why the market worked in that way and the measures that we could take to correct it. It is only right that people should ask before they buy an annuity whether it is appropriate for their age, gender, financial circumstances and other income streams, and whether their life is impaired, for example. Those are basic questions that people do not ask at present.

Angela Browning: I return to a general point: the purpose of pension vehicles and the tax breaks that the Government of the day decide to apply to them is to encourage people to save from their earnings during their working lives for their retirement. The compulsory element of annuities acts as a disincentive to people to do so. For example, I have just cancelled my contribution to my parliamentary additional voluntary contributions because, if my right hon. Friend the Member for Skipton and Ripon is not successful with the Bill—I hope that he will be and I shall reinstate my contribution—those with AVCs and other pension savings who contracted out of the state earnings-related pension scheme, which carried a bonus, will have to take out an annuity. There are other things that I can do with that money—

George Stevenson: Order. The hon. Lady's intervention is stretching the point a little. I recognise entirely that amendment No. 5 mentions people who choose not to take out an annuity and it is legitimate for hon. Members to explore the reason for that. However, they should not forget the purpose of the amendments.

Ruth Kelly: Thank you, Mr. Stevenson. I shall try to stick precisely to the amendment, although I shall argue that there are alternative savings vehicles. How a fund may be used is legitimate in the context of the amendment.
 The amendment would not ensure that the retirement failsafe fund would generate sufficient income in retirement to enable people who took that option to be sure that they would not have to fall back on the state in later years. It states that if the fund is less than the necessary sum, it will become a retirement failsafe fund. Although there is no guarantee that a fully funded retirement failsafe fund would sustain the necessary income, any fund underfunded at the outset would be guaranteed not to do so. Failsafe is something of a misnomer in these circumstances. That is a technical detail that applies to the entire Bill. 
 I understand the motives of the Christian Brethren, but an annuity is the only means of guaranteeing a secure income for the whole of a person's life, which a failsafe fund cannot do. The same thing can happen to those with very large funds. Their failsafe fund might be depleted until it could not sustain the minimum retirement income, but they would have freedom under the proposals to withdraw as much as they liked from the remaining personal pension fund before the age of 80. At 80, the remaining funds are supposed to be merged, and at that time and every year after that the fund must be divided by the number of years remaining to the age of 100, as the hon. Member for Tiverton and Honiton said, and that amount paid out as income. 
 There is nothing to stop the fund remaining after the failsafe fund has been set up being withdrawn before the age of 80; it would be the choice of many wealthy people to extract the maximum possible so that they could take full control of it. The lack of any compulsion to buy an annuity, and full access to the funds before the age of 80 would be a huge incentive to 
 wealthy people to save much more of their income or to transfer savings from elsewhere into tax relief pension funds. The cost to the Exchequer of the extra tax relief that would be claimed as a result is estimated to run into hundreds of millions of pounds a year—an issue that we will discuss later in the Bill. I take Mr. Stevenson's advice to stick to discussing the principles of the amendment, which is about religious objections to the annuity system. 
 The amendments leave many questions unanswered. What happens to the remaining funds if a pension scheme member dies before the age of 80? What happens if the pensioner lives beyond 100? The proposals make no provision for how the funds are to be dealt with in those circumstances. 
 The hon. Lady talked about cash ISAs. It is worth exploring the methods of saving available to Christian Brethren and others with religious objections to insurance products. It is important to realise and accept that people can save for their retirement without a personal pension scheme. There is a tendency to think that if people do not take out insurance products there is no vehicle available to them to save for their retirement, but that is not true. 
 A personal pension scheme may currently be the most efficient and tax-advantageous use of money, but those who want to build up savings for their retirement can do so in other ways. Those ways include the individual savings accounts that the hon. Lady mentioned, which are tax privileged and can be used for any purpose. Money can be invested in residential properties for letting. That would yield a rent income and result in capital appreciation over time. Judicial investments and careful planning are needed to realise profits and deliver a secure income for retirement.

Howard Flight: As the Minister may be aware, there is a specific issue for Brethren who are employers. They are by law obliged to offer their staff a stakeholder scheme, which in turn, as the law stands, obliges them to invest in annuity. I understand that there have been discussions with the Revenue about shaping an ISA saving scheme. There are two problems: first, the obligation to offer a stakeholder scheme and, secondly, the time limit on ISAs. Unless some change were made to that situation, it would be almost impossible to craft an ISA retirement scheme. Will the Minister comment on whether the Government are thinking of addressing that?

Ruth Kelly: The hon. Gentleman makes some valid and interesting points. The hon. Lady pointed out the difficulties of Brethren employers as well as employees. Clearly, there are difficulties with the current system, under which funds must be invested in an annuity product. The Bill, and the Government's amendments to it, were not aimed at addressing that problem, and it is difficult to do so from within the confines of the Bill.
 As I read the Income and Corporation Taxes Act 1988, the requirement to purchase an annuity at 65 would not just leave unaffected the issue of stakeholder pensions but would actually worsen matters for those involved. That is a genuine problem that must be resolved, but the amendment will not solve it. 
 However, I am not unsympathetic and unwilling to consider these points. In fact, I have heard representations from the Brethren. I shall consider the matter in light of the consultation, and I look forward to exploring the issues with them when the consultation period is concluded.

Frank Field: It is clear that not all the questions that the Minister raised can be answered by amendments Nos. 1 to 5. However, if she would like to advertise her surgeries to the Brethren, I am sure that they will come in abundance to clear up those difficulties.
 There are some technical issues that are small at the moment, such as how the scheme would work for people who live beyond 100. If the amendments under discussion were accepted, there would be two models in the Bill for how to get round the annuities issue. At some stage my right hon. Friend the Member for Skipton and Ripon will have to consider whether he wants to drop most of his clauses and keep these small amendments. If he were to consider that as a route for getting a reform through the House of Commons, would the Minister advocate these amendments or a big Bill?

Ruth Kelly: My right hon. Friend has perhaps deduced why I do not advertise my advice surgeries to the general public, although of course I have them regularly. The technical flaws in the Bill and the amendment run parallel. Some of the issues that I have highlighted in relation to the amendment, such as the ability to secure a minimum retirement income through setting up a retirement income fund, failsafe fund or however one chooses to describe it, are similar. It is a difficult concept. We do not agree on the methods through which reform would be achieved, and neither the amendments nor the Bill provide a vehicle for dealing with those issues. However, there are issues that we must examine, and I hope to have fruitful negotiations about them in future.

David Curry: I have a couple of general observations on the Minister's remarks. Amendments tabled not by the Government are almost always technically flawed. If the Government are willing to accept the spirit of what Members are trying to do, they usually agree that if the amendments are withdrawn, they will introduce technically correct versions on Report. We cannot proceed on the basis of simply saying that amendments are technically wrong. The Government get millions of things wrong in Bills, and most amendments made in Committee are introduced by them.

Ruth Kelly: I thought that I had made the point clearly that although some of the issues in the amendment are technical, my argument has parallels throughout the Bill. It mirrors arguments that we have with the entire content of the Bill, which suggests that the argument is not purely a technical one on drafting, but applies specifically to the character of the amendment.

David Curry: The Minister began her remarks by saying that the amendments were technically flawed. If her real objection is that she does not like the amendments, we can skip the bit about the technical flaws and get to the substance.
 I hope that the Committee will not be dominated by the suggestion that because only certain people can benefit from things, they are wrong. We are beginning to see elements of that already. It is interesting to read the Government's consultation document—the mouse that did not roar—and find innovations that are specifically described as having value only to those with larger funds. We may find ourselves debating different people who can benefit from the proposals.

Ruth Kelly: If I criticised proposals merely because they benefited only a few people, the right hon. Gentleman would be correct in attacking that position. He would be right not to agree with it, because I would not agree with it either. The principle that underlies our approach to annuity reform is that any benefits and reforms should not disadvantage the majority of people while benefiting a few.

George Stevenson: Order. The Minister's intervention is lengthy, and I remind the Committee that there are two issues. One concerns the issues in the amendments that we are discussing; the other is the general principle of possible reform to the annuity regime. I suspect that if we go too far down the latter road, we will not make much progress on the former, which is the purpose of our deliberations.

David Curry: What the Minister said is all very well, but it is sometimes difficult to define whether people are disadvantaged or not. In subsequent amendments the Minister will seek to reinstate draw-down, even though the consultation paper states that draw-down is pretty iffy. By reducing the pool of money that goes into an annuity, draw-down dilutes the pooling of the risk, which damages people who do not have the option of larger-sized funds. We must be more careful.
 On the Plymouth Brethren, I am intrigued to know where the Minister holds her surgeries. I did not know that she did not advertise them. I obviously need to take advice on that. She seems to have got into a wheeze that I wish I had thought of a long time ago.

Ruth Kelly: Only to the general public.

David Curry: I thought that my constituents were members of the general public. I may be curiously—

George Stevenson: Order. We are doing fine so far, but I need help to continue to make progress. I am yet to understand how Members' advice surgeries are relevant to the amendments.

David Curry: I will eliminate my proposed reference to Jehovah's Witnesses.
 I understand the concerns of the Plymouth Brethren in that being obliged to buy annuity is taking a gamble on—or making an assumption about—life expectancy, which only God should take. That is the heart of the argument. My hon. Friend the Member 
 for Arundel and South Downs (Mr. Flight) wants to substitute a mechanism that would deliver the equivalent—in his view, perhaps greater—security of the annuities route. 
 I resisted great temptation in deciding that the Bill should start by accepting the Government's proposition that, where funds have been accumulated through tax concessions, it is incumbent on the person who has made the accumulation to make security for their old age rather than fall back on welfare. Annuities therefore form a central part of my Bill. 
 Previous Bills would not have removed the obligation to buy annuities: they gave complete discretion. We decided not to go down that route, but sought to define a role for annuities—the welfare-protecting element of the Bill. I do not want to depart from the central principle, which is to seek common ground with the Government on that. The area of disagreement lies in deciding what happens to funds ''surplus'' to the requirement to buy benefit. 
 The amendment would clearly breach the central principle. My hon. Friend would stress the specific purpose, which arises because a group of people with religious convictions feel that they cannot go down the route prescribed by the Minister and myself. I remain concerned about an 80-year threshold. One of the options was to increase the 75-year limit. I agree with the consultation paper in rejecting the raising of thresholds. I have gone in the opposite direction. I trust that my hon. Friend envisages his mechanism as having specific application to people with a particular concern, or is it capable of leaking into a general application that would undermine the principles of my Bill? He may be testing the Minister's response.

Howard Flight: As the amendment stands—and, indeed, in principle—it is impracticable to legislate for a particular religious allegiance. As the right hon. Member for Birkenhead (Mr. Field) said, the failsafe fund, which the amendments represent, would in principle be available to anyone wishing to take that route. Most people would deem it unattractive, however, because of the 150 per cent. requirement in respect of the failsafe annuity and the low-risk investment area. The annuity that is proposed in the Bill is likely to be deemed more attractive, but the two cannot be separated in principle.

George Stevenson: The response was shorter than the intervention.

Angela Browning: The Minister admitted that she is opposed to this group of amendments on substantive as well as technical grounds. I am disappointed about that. With regard to the Bill, she has consistently championed the principle of flexibility: it was one of the first words that she uttered in her response on Second Reading, and it is frequently employed in the Government's ''Modernising Annuities'' consultation paper. However, although these amendments provide
 her with an opportunity to be flexible, she is resisting them for substantive reasons. I wish to press the amendment to a Division.
 Question put, That the amendment be made:—
The Committee divided: Ayes 5, Noes 4.

Question accordingly agreed to.

Ruth Kelly: I beg to move amendment No. 7, in page 1, leave out lines 11 to 14.

George Stevenson: With this we may consider amendment No. 14, in page 2, leave out lines 18 to 20.

Ruth Kelly: The right hon. Member for Skipton and Ripon cannot criticise these amendments on the ground that they are drafting amendments. They address a major aspect of the clause, and they are intended to correct an inherent flaw.
 The Bill seeks to force all personal pension scheme members to use their funds to buy a minimum income annuity by the age of 65: any remaining moneys can be designated as a retirement income fund, from which income can be drawn at the will of the scheme member. The Bill removes an existing flexibility—the right not to buy an annuity until the age of 75. 
 It also sweeps away the current rules with regard to income withdrawals, which are designed to ensure that the fund is not under-drawn or over-depleted. The right hon. Gentleman has said that there are problems with those rules. We accept that they are not perfect, but they have a role to play. They ensure that pension funds are used for their intended purpose. They set minimum and maximum income limits to ensure that a reasonable income is drawn, and that the fund is not over-depleted. They also provide that income withdrawals must not be made after the age of 75 when, under the current system, a lifetime annuity must be purchased. The right hon. Gentleman has criticised the Government for talking about only people with large pensions funds who are able to benefit from some provisions. However, it is worth bearing in mind those who use the draw-down facility, considering how that facility is used, and examining the potential effect of its retention or abolition on the pension system. 
 The draw-down facility is popular with people who have very large pension funds. It attracts about a quarter of matured retirement savings by volume, although only about 5.5 per cent. of the transactions. It is clear that they are among the larger retirement funds, and their average value is more than £140,000. People have told the Treasury that the advantages of the current draw-down system include transparency 
 and control. Additionally, there is potential for legacies should a person die before buying an annuity. Depending on how pensioners arrange their draw-down facility, they may have complete control over the part of the fund that is invested, and they need not delegate choice about the deployment of their funds unless they wish. People who choose draw-down systems usually value that transparent arrangement. They say that they do not wish to cede control of their pension assets to an annuity provider in order to retain equity exposure. 
 However, as the right hon. Gentleman alluded, draw-down systems involve considerable disadvantages, which I shall mention before I tell the Committee why I want the system reinstated. Draw-down inevitably exposes pensioners to mortality drag. If the right hon. Gentleman has read the consultation document, he will realise that although the public may not be curious about mortality drag, the Treasury and the Inland Revenue are fascinated by it. Mortality drag is the reason why annuity purchase is such a good deal for pensioners. 
 Mortality drag works in different ways, but it ensures that the longer a person waits before buying an annuity, the less efficient the use of their income. If a pensioner decides to invest his pot of money in equities before purchasing an annuity, he may benefit from the growth of that fund, which may be invested in the stock market or other securities. The growth might outweigh the loss of efficiency that is incurred by buying an annuity at a later date. Economic analysis suggests that around the point when a person reaches the age of 75, it becomes clearly more worth while to buy an annuity rather than waiting for further growth of a pension fund because that money becomes much less efficient.

Howard Flight: The Minister and the excellent paper overlook a practical aspect of mortality drag. If we examine the present situation in which stock markets have been dramatically weak for two years, a person aged 75 whose pension fund might have fallen by 35 per cent. would understandably believe that that could recover in a further 18 months. That would offset the drag effect. The Minister's point is clear in principle, but the practical situation is not quite like that.

Ruth Kelly: Draw-down inevitably involves a degree of risk. Retired people take a gamble on the stock market with their pension funds. They make their own internal forecast, or rely on the advice of others about the likely future growth of the fund. They may come to the opinion that the fund is likely to fall over the next 18 months or two years. They may reach an opposite conclusion from that that the hon. Member for Arundel and South Downs has put forward, which means that they would buy an annuity earlier than they otherwise would.
 Investing in the stock market involves a degree of risk. If one is risk neutral it may be worth deferring the purchase of an annuity until the age of 75, but for the majority of people who are risk averse, the age at which it makes sense to buy an annuity is significantly 
 lower than 75. As the Committee knows, the Government have suggested 75 as the age at which buying an annuity should become compulsory. 
 I have already referred to the fact that people decide to use financial advice when using income draw-down because the decisions are complex. At the moment, the cost of financial advice for income draw-downs is considerable. One issue that we are exploring through the consultation document is whether there are ways in which advice charges, which currently reach 6 per cent. of the total nominal amount for income draw-down, can be reduced. We have explicitly asked about that issue in the consultation document. 
 Another way in which to make sure that the charges for income draw-down are lower than they are at present is to introduce the concept of a limited period of annuity. Instead of having to rely on income draw-down, which would mean incurring charges year after year, people will able to take financial advice at a single point. They will be able to buy an annuity for perhaps three or four years and then reassess their financial situation to ascertain whether it makes sense to buy an annuity. That will probably bring significant advantages to the group of people, who tend to be those with larger pension funds, that currently uses the income draw-down facility. 
 An important principle in the Government's attitude to annuity reform is the introduction of a limited period annuity, which will, if anything, cause the majority of annuity rates to rise rather than fall. It will do that by taking pressure off the long-term gilt market. It introduces the idea of backing short-term annuities with shorter gilt products, and, as the hon. Member for Arundel and South Downs knows, the gilt market is under great pressure and long-maturity index linked gilts are in short supply. Working for the benefit of the majority of annuitants is an important principle in annuity reform.

Frank Field: The Minister is rightly drawing attention to the costs of some aspects of policies that allow money to be drawn-down. Has she thought of reminding the industry that it was not that long ago that the Government were a supplier of annuities? If they came back into the business, they could reduce those charges at a stroke. They have been immensely successful in reducing pension charges through stakeholder pensions; might a similar policy not operate here?

Ruth Kelly: I thank my right hon. Friend for his comments, which are useful. He should make those points to us in the consultation process.
 One question we raised is by how much charges can be reduced. They are far too high, and most people who use the facility lose considerably on the charges incurred. The charges are unnecessarily high, and I hope that from the responses to the consultation process we shall see ways in which they can be reduced. Competition from limited period annuities may help to drive down charges. The flexibility to innovate in the market that we hope will be introduced following the 
 consultation will also introduce an extra element of competition, which will lead to the market working better. 
 Draw-down also has an important flaw from a public policy perspective in that it has a current exit charge of 35 per cent. One lesson we have learned is that it tends to be people subject to higher rate taxes on their annuity income who take advantage of measures such as income draw-down. Many weeks ago, I asked what size pension fund one would attract 40 per cent. income tax on annuity income. The answer, depending on the type of annuity taken out, is between £300,000 and £500,000. That is not to say that there is a problem about acting for people with funds of those sizes, but it puts the subject in context. At present, 1 per cent. of pension fundholders have funds as high as £500,000. That gives a flavour of the number of people who would benefit from the proposals. 
 If the majority of people who use income draw-down are higher rate taxpayers, and we have an exit charge of 35 per cent., such people are not only benefiting from 40 per cent. tax relief provided by the Treasury, but from the tax-free investment growth of the pension fund while they have it. They are also benefiting from the fact that pension relief is given to pension funds as a deferred income to the Treasury, with tax later refunded through an exit charge—a period of deferment. Significant costs to the Exchequer therefore exist in the present arrangements. 
 Although draw-down has its limitations—we are trying to get the market to work significantly better—there is no reason for abolishing income draw-down rules, or for having no rules or constraints on the use of money after a certain retirement income fund has been set, as the right hon. Member for Skipton and Ripon proposes. That leads me to consider for the first time the costs that would be incurred were the income withdrawal rules abolished. We must consider the cost to the Exchequer of proposals that are put forward, particularly in private Members' Bills, because, unlike primary legislation, they do not benefit from huge resources and input, or from debates in the House of Commons. 
 One argument is that were we to scrap the income withdrawal rules, we would have a system in which there would be a huge incentive for people to start saving in pension funds; they could be sure in the knowledge that they could gain 40 per cent. tax relief on the tax-free investment growth of the fund, draw it down and use it for whatever purpose. However, that fundamentally misunderstands the purpose of what can be described as a ''contract'' between the state and individual. The contract is that we provide 40 per cent. tax relief provided that the individual member uses the money to buy a secure income in retirement. We provide that because it is important that people have an incentive to lock up funds for the long-term future, look after themselves and do not to fall back on benefits, and for no other reason. I have already 
 explained other forms of saving that are available to people who do not want to take advantage of the current system.

Howard Flight: Has the Minister any evidence that in Canada or Ireland, where the obligation to buy annuity has ended, there has been the much-feared increase in pension saving, to which she refers? I understand that not to be the case. Although everyone is entitled to an opinion, I argue that the attractions of a 40 per cent. exit charge are not likely to stimulate a huge increase in pension saving. My worry is that pension saving is moving in another direction—it is going to hell.

Ruth Kelly: The hon. Gentleman points to what we can learn from international experience. Several things can be learned, although differently designed pension systems exist, so it is not easy to draw close parallels. If rules do not lock in money for the long term, and people are allowed to draw it down, they tend to underestimate life expectancy and deplete funds too early during their retirement. We do not want to see that happen.
 Life expectancy is increasing rapidly: I am sure, and I hope, that that will continue. People, for whatever reason, are prone to think that they should withdraw too much money, or to underestimate the length of time that they have to live. Consequently, they draw-down money too early in their retirement, deplete their funds and fall back on means-tested benefits at a later date, which is undesirable for the state and the people concerned. 
 At present, the annuity is the only financial product that guarantees a secure income stream, no matter how long a person may live. It provides not only a secure income stream that allows people to extract their capital in a financially efficient way, but by pooling risks it allows those who live longer to benefit from those who die earlier, to put it crudely. In that sense, they are protected and have a genuine income stream that does not suffer as a result of their good health. They can use the benefits of the pooling system in the insurance market. Once that principle and the rules on income withdrawal are got rid of, one is left with a system that provides 40 per cent. tax relief. The state contributes about £30 for every £100 in a fund, which people can use for any purpose. 
 That will not increase pension saving, as the hon. Member for Arundel and South Downs suggests. Saving in pension funds may increase, but the amount of money that people provide for their retirement income will not. People will shift from other forms of saving into pension funds, free in the knowledge that they can use those funds for the same purpose that they used their previous savings.

Jim Cousins: Would my hon. Friend accept that in the American 401K plans, which are the model for stakeholder pensions to an extent, there is provision for drawing down pension funds for other significant lifetime events? For instance, one might need provision for residential care, or the financing of higher education.
 It would be possible to design rules that would protect the integrity of pension funds, while allowing more flexibility in their use.

Ruth Kelly: I am interested in my hon. Friend's contribution. He may have studied the 401K pension scheme more closely than I have. If so, I would be interested to continue the debate. From my cursory understanding of the 401K scheme, I believe that the Americans are having difficulty with people extracting capital for legitimate reasons, but ones other than securing a long-term income in retirement. They also face the problem of people falling back on state benefits later in retirement and underestimating the need for locking away long-term savings.

Jim Cousins: That is a fair point, but surely the Minister is not saying that the United States is attempting to redraw the rules of the 401K plan so that no such draw-down is possible? It is considering making the rules more rigorous, which is entirely consistent with the matters before the Committee today.

Ruth Kelly: I would not say that the Americans are considering rewriting their 401K schemes: I have no precise knowledge of the internal debates that took place in the United States on that score. However, in the US, people are very restricted in their other savings vehicles. In the UK, we have the benefit of individual savings accounts, introduced by this Government, that are designed to encourage low-paid people and even non-taxpayers to save for the short or the long term. People here have a great deal of flexibility over how they use those funds, but I believe that there is no similar savings vehicle in the USA. Greater flexibility in the use of the 401K pension scheme is essential if people in the US are to provide for themselves.

Jim Cousins: One reason why the equivalent of the individual savings account is not required in America is because there is flexibility in the 401K plans.

Ruth Kelly: I hope that my hon. Friend is not suggesting for a minute that we abolish individual savings accounts or other savings vehicles here.
 Pension funds are highly tax advantageous precisely because one has to lock away one's money for a considerable length of time, longer than people might naturally choose, given the everyday circumstances and difficulties that they face and the need for contingency, or rainy-day, savings. It is very difficult for people to choose to lock away sufficient money for their retirement. That is why we have rules that require people to buy an annuity by the age of 75 and income withdrawal rules that ensure that the fund that someone has set aside is not unduly depleted and can still provide for a secure income in retirement by the age of 75. 
 If people survive as long as 75, it is likely that they will have a considerable period of further life expectancy. I do not have the figures in front of me, but I might be able to find them to give to the Committee later. It is a very important point that if people reach 
 the age of 75, they must be in a position to provide for themselves for a significant length of time. I would benefit by having those figures here, because they are interesting. Someone who reaches 75 will typically have a life expectancy of about a decade—10 years for men and 12 for women. Those averages conceal a significant dispersion. Of people who reach the age of 75, 8 per cent. of men and 13 per cent. of women live for another 20 years. 
 I do not know how prepared my hon. Friends and hon. Members would be for such a future life expectancy at that age, but I do not think that it would strike me as likely that I would live for another 20 years. There is, however, a real chance that my income would have to last that long, which is why it is essential to be able to buy an annuity that provides a secure income flow in retirement. It is an uncertain time when people are very vulnerable, and it is essential that they make the correct choices and do not lock themselves into the wrong annuity. We have tried to open up options in the consultation paper so that people do not lock themselves in for perpetuity, but have the option at several fixed and regular points to examine providers and see whether they have the best deal. We are opening up various ways of introducing greater competition into the market. 
 I return to the cost of stripping away income withdrawal rules. Currently, 40 per cent. tax relief is provided under the contract between the individual and the state. After tax from current pensions and payments is taken into account, the cost to the Exchequer of pension scheme tax relief is estimated to be about £12 billion a year. 
 People often choose to take tax-free lump sums, and that is another cost to the Exchequer. Presumably, if more people were encouraged to use pension schemes as a savings vehicle, the Exchequer would lose more tax on the tax-free lump sums that people can draw down. However, what would probably happen is that people who use other pension vehicles would start to transfer their savings from other pension vehicles into a pension fund. 
 To calculate the true cost of the reforms that the right hon. Member for Skipton and Ripon suggests, we must take into account the unused tax reliefs that people could take advantage of if they switched their savings from other vehicles into pensions. There is room for a further £34 billion of reliefs each year under the current tax limits. Of course, if people are not able to save more, they will not be able to shift money from other savings vehicles into pension funds; however, even among higher rate taxpayers there is £8 billion of unused tax relief. It may be that higher rate taxpayers are already saving all that they possibly can and that they will not take advantage of the extra tax relief through pension funds. However, a large proportion of that group is saving significant sums in other vehicles, such as ISAs, property, life insurance products and so on.

David Curry: I am anxious to identify the people who will cost the Treasury £34 billion. Are they people with private pensions that are not high enough for maximum relief? Are they people who do not have
 private pension funds but who may be attracted to them? Is the amount based on the total compos mentis population of the United Kingdom applying for the whole of the tax relief on private pensions? I wish to identify those who may be queuing outside the Treasury for these tax reliefs, because £34 billion is a large sum. To form a judgment about the probability that people will take advantage of the reliefs, we must know who they are.

Ruth Kelly: The right hon. Gentleman raises an important point. I was about to say that not everyone will take advantage of the new headroom in pension funds. In fact, there is a strong argument that many who have pension schemes are already saving to their maximum.

Angela Browning: I wish to return to additional voluntary contributions. The proportion of AVCs to make up the maximum 15 per cent. contribution is not subject to a tax-free lump sum but must be taken as an annuity. For example, we contribute 6 per cent. of salary to the parliamentary pension scheme. There is little incentive to put in another 9 per cent. simply to buy an annuity, which is very bad value for money.

Ruth Kelly: If the hon. Lady thinks that it is bad value for money, I am sure that she will invest her money in other savings vehicles. I am glad that she is taking a sensible economic approach to these matters and, if she wants greater flexibility in the use of her retirement fund, under current rules that is what she should do.

Angela Browning: Additional voluntary contributions were a good way of getting people to maximise their pension input. They are bad value for money only because of the compulsory element of having to take out an annuity.

Ruth Kelly: I thank the hon. Lady for her contribution. One of the principles behind the Bill is precisely that annuities are bad value. I dispute that argument and I shall return to it. Under the Bill money could be switched from AVCs to another savings vehicle to take up the headroom available for extra tax relief and allow the money to be used for something other than purchasing an annuity. A significant number of people would like to take advantage of the current tax rules to save in traded bonds and, if the right hon. Member for Skipton and Ripon asks who they are, I can point to one.

Howard Flight: I am sure that my hon. Friend the Member for Tiverton and Honiton was about to tell me that it would come from her ISA account. Is the Minister advancing the £34 billion or £8 billion potential tax cost as a serious argument or debating point? She said that more money might flow into pension saving and less into ISAs and that people may vary the way in which they save. Is her hypothesis that the overall level of savings would rise, or merely that there would be some changes? If there are changes, the tax benefits must also be considered. If people save less
 in ISAs and more in pensions, the tax calculation will work in one way or vice versa. I make the point forcibly that from my observation people increasingly prefer to save for their old age via ISAs because a tax-free income in retirement is often perceived as even more attractive than money being tax deductible when it goes into a pension scheme. Both ISAs and pension saving enjoy a tax-free roll-up while the money is being saved.

George Stevenson: Order. The hon. Gentleman may make a contribution, but not during an intervention.

Ruth Kelly: Thank you, Mr. Stevenson. I was enjoying the hon. Gentleman's points. He will remember that we recently had lunch together and discussed such issues with members of PIMA and the ISA Managers' Association who argued for greater flexibility in an ISA system. I thank him for his comment about the attractiveness of the current ISA facility, which is another route for people who want to save but need greater flexibility. The hon. Gentleman asked me whether the £34 billion referred to people moving between different savings vehicles, such as moving money from ISAs to pension funds or to new savings. I understand that the figure refers to both and does not differentiate. It is the unused and available tax relief headroom within the current tax rules. The argument then moves to the point made by the right hon. Gentleman in his Bill: who are those people?

Lynne Jones: Whether annuities offer good value is, perhaps, a moot point. One of the problems is that there is a perception that they do not. Is not the Government's policy to encourage more people to take out stakeholder pensions? Do not the Government want people to take up some of the £34 billion of unclaimed tax relief that is available? Will not the Government's policies fail if people do not?

Ruth Kelly: Of course we want to increase pension savings, but for income in retirement. We do not want to increase the notional value in pension funds because people want to use the money for bequests or in order to avoid paying tax or to do other, perhaps good, things with that money. Other vehicles exist for saving for such purposes.
 We want to provide a real incentive for people to think long term about their pension needs and to have appropriate vehicles such as stakeholder pensions, which are transparent, easy to understand, available in large quantities from employers and suitable for the majority of people on low incomes. We need the correct choice of savings products in order to increase general take-up and ensure that people are provided for in their old age. That is not to say that we should increase total savings in pension vehicles as opposed to other vehicles, or that people should invest merely with the intention of receiving more tax relief from the Exchequer and using that tax relief to do things other than provide an income in retirement.

Jim Cousins: I draw to my hon. Friend's attention the tax rules surrounding stakeholder pensions, which are in effect a tax-free hosepipe for £2,808 a year to pass from the pockets of the very wealthy to those of their non-earning partners, children and grandchildren ad infinitum.

Ruth Kelly: As usual, my hon. Friend makes an interesting point, although I do not necessarily agree with his conclusion. Stakeholder pensions are in the early stage of development. Only in October was it made compulsory for employers to offer stakeholder pensions, and it is perhaps not surprising that previously people other than current employees were the first to take advantage of the new savings vehicle. In future, as stakeholder pensions become more widely available and are better publicised, and as their inherent attractiveness becomes clear, the take-up by individuals who choose to save for their retirement will be much greater.
 I believe that the target group of people who are likely to find a stakeholder pension attractive is those who earn between £9,000 and £23,000, although I stand corrected if those figures are wrong. Clearly we have a lot of work to do to ensure that people understand the need to save for their retirement. We must work closely with the Financial Services Authority to ensure that people understand what products are available, save appropriately and make correct savings choices, whether for their retirement, long-term care or other needs—

George Stevenson: Order. I understand that the amendments relate to the draw-down rules. It is right to refer to the cost of those rules and to changing them, but I am slightly worried that we may be moving into a general debate on pensions policy. I hope that we shall return to the amendment.

Ruth Kelly: Thank you, Mr. Stevenson. That provides me with the opportunity to return to the point made by the right hon. Member for Skipton and Ripon about the £34 billion and the cost of scrapping current income withdrawal rules. He asked who—

David Curry: The answer is that the Minister does not know.

Ruth Kelly: We know of one person who is likely to be affected by the scrapping of the rules. No doubt there are many others. However, it is clear that people paying the higher rate of tax of 40 per cent. tax are likely to have greater disposable income that they could save than those who are not paying higher rate taxes. That is a conservative way of considering the issue However, even if we consider only higher rate taxpayers, there is headroom of £8 billion of unused tax relief under the current tax rules. That could be taken advantage of through new savings or by moving savings from one vehicle to another.
 I have no doubt that some will take advantage of the new rules to save in pension vehicles, although that will be a minority of persons—I can point to one. Their intention is to save not to deliver a secure income in retirement, but for other purposes, some of which may 
 be unforeseen. They may also intend to build up an estate that may be transferred on their death to a spouse or a child. Even if only 10 per cent. of people took their full allowance under the tax-free rules, and 90 per cent. of people used none of the extra headroom available, it would cost the Exchequer £800 million to abolish the rules. That significant sum was based on conservative assumptions. The right hon. Member for Skipton and Ripon may dispute those figures, but I explained why I believe them to be conservative. 
 These are not the only potential costs to the Exchequer. I tried to explain on Second Reading why the cost of the right hon. Gentleman's proposals could run into billions of pounds, but I was interrupted and I never got the chance. A 65-year-old male with a pension fund of £600,000 is the sort of person whom one might expect to benefit from the right hon. Gentleman's proposals. About £150,000 of that sum, which has been built up through the assistance of generous tax relief, can be taken tax free if the rest of the fund is used to provide an income for life for the scheme member.

Lynne Jones: Have the Government considered why such generous relief should be given to people to accumulate funds that will provide an income in retirement far in excess of average earnings?

Ruth Kelly: My hon. Friend may be proposing that we restrict access to pension income for the wealthy. I do not agree. There should be a level playing field between people of different incomes, provided that they are prepared to lock up their income for retirement, and we should grant them the same tax relief. My hon. Friend raised the important point that the current system provides such a level playing field. However, we are considering simplifying the tax system and the relationship between defined benefit schemes and defined contribution schemes, and we will come up with proposals that my hon. Friend may find attractive.

Angela Browning: I am encouraged by the Minister's response to her hon. Friend. We are discussing higher taxpayers having to put yet more money aside, perhaps more than the average wage, but those are the people who end up paying their own nursing home fees. The Minister should look holistically at the expenditure of old age and on what the money is spent. It does not all go on cruises, but on the essentials.

George Stevenson: I am in favour of considering things holistically, but there are limits even to that exercise. It is important for the Committee to consider the reasons why people may exercise the draw-down facility, and the effects of the amendments and the Bill on them doing so. However, we have explored those reasons and the cost in great detail, and should return to the draw-down issues.

Ruth Kelly: Thank you, Mr. Stevenson, but I would like to say briefly in response to the hon. Member for Tiverton and Honiton that she must recognise that it is this Government who have taken measures to open up access to care in old age—[Interruption.] We can debate that another time.

Lawrie Quinn: I hope that you will regard this comment as helpful, Mr. Stevenson, as I would like to return to the amendments in front of us. The tour de force that we have had over the past 40 minutes has certainly confused me. We have read, and read again, about the consequences of the amendments. Is the Minister certain that the amendments would leave something meaningful, comprehensible and grammatical in the Bill? My reading is that they would not, so a technical drafting error would be built into the Bill. No Committee member would want to be party to that, so I ask the Minister for her help.

Ruth Kelly: My point was that if the Committee decided to scrap income withdrawal rules, there would be severe consequences to the Exchequer. That point must be made in Committee, and it is one that we have a real interest in debating today. Particularly, we must understand the potential cost implications of scrapping the income withdrawal rules, because they are fundamental to the Bill. If they were scrapped, people would have greater flexibility in the use of their retirement funds. The Government's argument is that that would lead to an additional flow of money into pension funds, not for retirement income but for other purposes.
 I want to return to the example with which I was attempting to illustrate the point, about a gentleman with a pension fund of £600,000—

David Curry: What is wrong with ''lady''?

Ruth Kelly: I gave the example of a 65-year-old male. The right hon. Gentleman may not remember, but I specifically gave that example. With your permission, Mr. Stevenson, I could refer to a 65-year-old female in my next example, although we will come to that in due course.
 Under the Bill, the gentleman could take his £150,000 tax-free lump sum. He would then need to use £55,000 to buy the minimum retirement income annuity, which would leave a remaining fund of about £395,000 that would continue to roll up tax free. That is the income in gains from the fund, which, although no longer needed for pension purposes, would be exempt from tax. The scheme member would be free to withdraw from the fund at will, but if he chose to make no withdrawals from the remaining fund during his lifetime, it would build up with the benefit of tax-free investment income and capital gains until his death. 
 A 65-year-old male—I must be precise for the development of the argument—has an average life expectancy of 17 years. A female of 65 has an average life expectancy of 20 years. On the lowest long-term growth projection rate of 5 per cent. a year, which is recommended for administrative purposes by the FSA, the fund would have increased to about £1 million over such periods. Under the right hon. Gentleman's proposals, the whole £1 million could be passed to the scheme member's survivor tax free. It is not clear whether the Bill would require the size to be taken into account for inheritance tax purposes. Perhaps the right hon. Gentleman will use this opportunity to let the Committee know whether he 
 thinks that is the case. If so and the sum reverted to the deceased member's spouse, there would still be no inheritance tax to pay.

David Curry: When the Bill was drafted, the intention was to include some fiscal provisions relating to exit taxes and qualification for state duty. We were advised that that could not be done in the Bill for technical reasons. Therefore, I made it clear on Second Reading that we intended the Government to use their tax powers to introduce complementary measures that would supply the complementary part of the Bill. It is not my intention that there should be free tax roll-up. I look to the Government to provide the complementary part of the Bill. Instruments linked with the Budget would settle the issue.

Ruth Kelly: I thank the right hon. Gentleman for that clarification. He might not disagree that if inheritance tax were introduced, the male or female who had saved for retirement could pass the savings on tax free to a spouse. I view that as the intention behind the Bill.

David Curry: Or partner.

Ruth Kelly: In that case, it would open up greater implications for the Exchequer. The member will have secured an index-linked annuity of about £3,600, taken a £150,000 tax-free lump sum and passed a tax-free £1 million to the spouse on death. That is an incredible and wholly unjustified tax-free gift from the general body of taxpayers to the wealthy. It would further increase the attraction of pension schemes to those able to switch substantial amounts of their wealth to take advantage of up-front pension tax reliefs. Such behavioural change could be expected to increase the public cost of pension schemes not only by hundreds of millions of pounds, but perhaps by billions of pounds each year. I look forward to hearing whether the right hon. Gentleman agrees with my arguments.

Angela Browning: Will the Minister clarify an issue with a huge read-across for inheritance tax rules between spouses? Is she seriously suggesting that it is inappropriate for such a sum to be passed from spouse to spouse, even though the will is properly drawn? I can think of no other example where inheritance tax between spouses would be applied.

Ruth Kelly: I thank the hon. Lady for intervening on such an important point. The Government would never suggest introducing inheritance tax between a member and his or her spouse. However, higher rate taxpayers with considerable pension funds at their disposal—who will already have benefited from 40 per cent. tax relief and tax-free investment growth of the fund—will find this provision a highly attractive route for passing on money between spouses on death.

Angela Browning: Those people who had the old section 226 pension and could draw a considerable tax-free lump sum from pension policies could equally leave it to the spouse. I see no difference.

Ruth Kelly: We are talking about a complete re-writing of the pension rules so that people can use their pension vehicles—they currently have to be used to buy an annuity by the age of 75—and face no income withdrawal rules to stop the depletion of funds. People will have much greater flexibility in deciding on the amount of money to invest in this form of pension savings. It will make current pension arrangements considerably more attractive and, if full advantage were taken, the cost to the Exchequer could be not just hundreds of millions, but billions of pounds. The Committee must understand the potential implications to the Exchequer.
 I have been criticised several times for saying that we will not take measures that benefit only the wealthy, but I doubt whether any member of the Committee wants to give significant additional tax advantages for people to bequeath large sums of money on their death to their spouse or children. That is not the Bill's intention, but it is an unintended consequence. It is a very serious flaw in the way in which the Bill has been drafted. The intention would be scuppered because the provisions in the Bill cannot deal with that problem. I therefore think it essential to reintroduce the income withdrawal rules and I ask the Committee to support the amendment and the consequential amendments that will reinstate income withdrawal.

David Curry: I shall begin where the Minister ended and ensure that there is no ambiguity. I said a few moments ago that I had hoped that we could have incorporated certain tax provisions in the Bill. The advice was that that was not possible and that to do so would require redrawing the long title and going into a complex procedure. Therefore, I made clear on Second Reading what our intentions were and what we would be inviting the Government to do.
 I invite the Government to apply a 35 per cent. exit tax at the point of inheritance, so that £1 million is not inherited tax free and what passes on is that amount minus 35 per cent., which would be £650,000. That should eventually be rolled up into the estate, which is paid at 40 per cent. over about £242,000. If a gentleman has £1 million in a pension fund, assuming that his house is worth more than the specified amount, he will pay 40 per cent. on the residual part of that pension fund, which is, I think, about £260,000. Of the £1 million that we have been discussing, the Government will collect something in the order of £600,000. The £1 million that has gone in that wonderful way to the spouse will shrink dramatically if the Bill works as I envisage it will if the Treasury uses its budget powers to produce complementary measures. 
 I realise that I cannot express my intention in the Bill, but that is how I envisage it working. I do not know many people with £1 million in the pension pot and I certainly have no expectations of getting that amount myself. In Skipton and Ripon in Yorkshire, my surgeries are not besieged by people worrying about the fiscal implications of having a pension pot of that size. The Minister will have to take my intention on trust, but increasingly, what is said in Standing Committee is treated as gospel.
 The Minister said earlier that people enter a contract with the Government. We want to be a little careful about the concept of contracts where one side lays down rules. That is a Hobbesian, not a Rousseauistic contract, if I may say so, which can be nasty, brutish and short because the Government can change laws at any time. That is the fact of the matter. The Government do not go back to the other person signing the contract and say, ''Look, I think we might want to change this contract, is that OK by you?'' 
 I understand and accept the underlying notion. I endorse it, as I said on Second Reading. However, I believe that the Government are right to say that if people receive benefits to accumulate pension funds, in return, the first call on those funds should be to maintain their independence. I have no quarrel with that, as it is a sensible notion. 
 I am not in fundamental dispute with the Minister about whether annuities are effective or ineffective, moral or immoral. My argument is, very simply, that once a person has made that provision for security in retirement—I even give the responsibility to the Chancellor of the Exchequer to define the amount required to deliver that security—it seems reasonable that he or she should be able to dispose of their funds. That implies, in a sense, the replacement of draw-down because the Minister said, rightly, that a person can opt to move into draw-down until the age of 75 with the exception of a 25 per cent. lump sum, which none of us is brave enough to want to abolish, although there might be an intellectual case for doing so, and which has to go into annuities. 
 People consider that there is an element of compulsion and they do not like it. I have not been besieged by letters from people saying, ''Actually, you've got it wrong.'' Furthermore, their letters were not drafted by their accountants. The proposal is fair. Many ordinary people have reasonable-sized pension funds. They may have changed jobs and be in receipt of a couple of pensions—a bit of SERPS and a bit of occupational pension. Those with a comfortable pension—not a generous pot of money—consider that they are on a one-way track and their expectations are at serious risk of being disappointed. 
 There are two hearts to the Minister's argument. In fact, they depend on each other. The contract with the eponymous pension holder means that, when a person buys a pension, he signs the contract and the only way in which to fulfil that contract is for the whole sum, minus 25 per cent. if he decides to take it out, to be used to purchase equities because that is the only sure route for a guaranteed income. We have had a long discussion about mortality drag, all of which I accept. 
 We do not need to be as definitive as that. People do not need to be locked in a straitjacket. It could be said that people may make the provision, but funds may be left that could be used at their discretion. That serves the same purpose as the draw-down. What do the Government get out of the proposal? I have been bending over backwards so far to help them that I am ashamed of myself. I have accepted the principles of the annuitisation and, by bringing it down to 65, I am 
 giving the Government even more security that people will not draw down to the point at which they dip into welfare. 
 I note the Government's fear of excessive depletion, but they acknowledge the disincentive of annuities. They used the word ''disincentive'' and that is what is protecting the Revenue. It is a curious notion that the Government are deeply committed to preventing people from taking up their entitlement because if they do take it up, which has been legislated for, they may cause undue drains on the Exchequer. 
 Who will benefit? The honest answer is that we do not know. There is an argument in the United States and other countries about the extent to which people's funds are discretionary. To what extent do they shift from one form of pension to another? To what extent do they want to keep funds against unexpected events? We can work out an entirely respectable argument on either side of the equation. The amount of discretion must be relatively small or people would leap into new pension schemes. 
 Of the 56 million—or 58 million—people in this country, we have identified only one who may be willing to exercise extra discretion. I am sure that the husband of my hon. Friend the Member for Tiverton and Honiton is better placed than me in such matters, but my hon. Friend's ability to consume £34 million seems to be taxing her ingenuity even given the extraordinary high cost of goods in the United Kingdom compared with the continent. If she lived there, she would receive even more value from the £34 million, even if it were only £8 million. 
 Headroom has been referred to, as has not wanting people to do the right thing for the wrong reasons. The Minister said that people are entitled to take such action; the provision is legal, but the Government do not want them to take part in such a scheme because they may do so for the wrong reasons. It is because of doing it for the wrong reasons that I suggested some basic tax provisions to ensure that people would not take action that would be against their own interests or, to use a fashionable phrase, counter-intuitive. It would be silly for a person to over-provide for his pension if, in so doing, he was walking straight into a level of taxation that would remove the advantage. 
 As my hon. Friend the Member for Arundel and South Downs said, the Minister applauded ISAs because they have a different tax benefit and for many people they would represent a more efficient and sensible means of dealing with the problem than a private pension. 
 The Bill is organised in a way that is intended to avoid the compulsion that is present in the system, to retain the notion that people must provide for their old age and to erect a fiscal structure that ensures that the Government take account of the time lag between their investment in a pension and the recovery, so that they get back their part of the contract. The Minister has acknowledged that that time lag exists.
 The investment that people are able to make and the income that they earn from it would provide the Government with a dynamic stream of revenue. The income would be taxable and, as the Minister said, some of it would be paid by people in the 40 per cent. tax bracket. 
 I am unrepentant about what I am proposing. I acknowledge the Minister's concerns. She expressed them in vague terms, because she is unable to quantify them, and I acknowledge that it is not possible for her to do that. With regard to her concerns, I suspect that there is great deal of present fears are worse than horrible imaginings, to paraphrase Shakespeare. It is the Inland Revenue's job to have horrible imaginings but it is possible that, as other countries have discovered, they will not turn out to be quite as real as is feared. 
 Therefore, I am unrepentant about this mechanism in the Bill and I advise the Committee to reject the Government's amendment.

Howard Flight: My right hon. Friend made it clear that there is no intention to build in any tax incentive. The exit tax would prevent that. He has explained why that cannot be part of the Bill.
 The essence of the question is whether people should be allowed to pass on to their children, after fair tax, any element of their pension savings. The Government are setting out their objection in principle to that rather more than they are making arguments about tax incentives or loss of tax revenue. One cannot make much of an argument that a lack of tax incentives leads to a significant loss of tax revenue.

Frank Field: My hon. Friend must be misrepresenting the Government's position. They believe that people who have paid their taxes should be free to pass on their capital to whomever they wish.

Howard Flight: I thought that the Government as well as the Conservative party now upheld that principle. It is clear from what the Minister said, however, that the objection to people passing on money is at the root of the problem.
 There is now an annuity scheme that provides what people actually want and is approved by the Revenue. However, it has very high charges and when the Treasury was wearing a different hat, it was keen to discourage people from being forced to buy expensive insurance wrapper products when they were unnecessary to the end objective. 
 The Minister's case does not stand up with regard to any of the key issues. The fundamental point, which has been difficult to get across, but which my right hon. Friend the Member for Skipton and Ripon has made clear, is that it is necessary for other legislation to accompany the Bill, to establish an appropriate exit tax and to ensure that no tax incentives are introduced by mistake.

Frank Field: When the Minister replies, I wish her to put on the record that it is not the Government's objective to prevent people from handing on capital. I
 hope that most hon. Members on both sides of the House agree that the handing on of capital should be supported, rather than curtailed.
 In my constituency, I have always noticed what the rich are able to do and, usually, what is good for the rich is also good for the poor. I thought that the amendment would ensure that other ways to tax the movement of capital were not put at an advantage.

Ruth Kelly: I thank my right hon. Friend for his intervention. The Government do not intend to prevent people from passing capital between generations. We do not want a tax-privileged method of saving that is designed purely to give a person secure income during retirement to be subverted for a different end—passing on capital. Other saving methods are available to allow people to pass on capital between generations and they are a fundamental part of our democratic system.
 The right hon. Member for Skipton and Ripon asked about the amendments. He said that he did not recognise many people coming to his surgery with £1 million-plus pension funds.

David Curry: Well advertised though my surgeries are.

Ruth Kelly: I will not go into details of how I let my constituents know about my surgeries; I am sure that we can discuss that outside the Room.
 Under the Bill, such a situation could become more prevalent. The fact that the right hon. Gentleman does not know many people with such funds illustrates that there are few people who would benefit from the Bill. In future, the number of people with larger pension funds could increase if that became a tax-privileged way of saving and the funds did not have to be set aside to provide a secure income during retirement. 
 I was grateful to the right hon. Gentleman for mentioning the exit charge. He said that he expects the Government to introduce a 35 per cent. exit charge in parallel with the Bill, if we were minded to accept it. I have already mentioned that a 35 per cent. charge is, in retrospect, not the appropriate rate for income withdrawal. Indeed, people who take advantage of 
 income withdrawal are generally 40 per cent. taxpayers. They benefit from not only 40 per cent. up-front tax relief, but tax-free investment growth of the fund. Therefore, although I accept that there are different definitions of tax neutrality, if a tax-neutral rate were set under one definition, it would be at least 40 per cent., and it could be significantly higher. Would the right hon. Gentleman accept an exit charge of 55 or 60 per cent., or whatever would be required to make it tax neutral, to secure the passage of the Bill? Does he think that he is proposing tax-neutral measures?

David Curry: I chose 35 per cent. because if a person dies before the age of 75 without having annuitised, there is a 35 per cent. exit charge. I am transposing that tax provision into the Bill. If the Minister makes a powerful case for a different provision or level of tax relief, I will listen to it. However, I am not prepared to argue about different figures without that debate.

Ruth Kelly: I am interested that the right hon. Gentleman accepts that 35 per cent. might not be the correct level for an exit charge. That becomes more important under the terms of his Bill than under existing legislation. If the rate were set at 35 per cent., that would shift the momentum to give an advantage to people moving money from savings vehicles into pension vehicles. If the rate were set much higher, the advantage would disappear and some problems would be overcome.
 All the problems would not be overcome, however, as several are inherent in the Bill. The rate at which the exit charge might be set is critical to the Bill. The figures that we have considered have not taken account of the 35 per cent. exit charge, but even if there were such a charge, the Exchequer would incur a great cost. 
It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
 Adjourned till Thursday 28 February at five minutes to Nine o'clock.